Swap options are associated with a volatility. There are various methods of estimating the volatility of a swap instrument. The current standard method for pricing swaptions is the Black-Scholes formula. The Black model takes a single volatility as its input. The Black formula assumes that interest rates are lognormally distributed. Accordingly, as the strike rate (exercise rate) varies from the forward rate (the projection of future rates) in the Black formula, the resultant implied volatility remains constant. However, as market observations show, the implied volatility of an option changes as the strike rate moves away from the forward rate underlying the option. Therefore, there is a need for a method for properly valuating swap options while recognizing that the options sometimes have different strike and forward rates.